Vietnam Approves Corporate Income Tax Reduction for 2020
- Vietnam’s government on September 25 signed off on implementing a 30 percent corporate income tax cut for the 2020 financial year.
- The reduction will apply to all businesses with revenue of less than US$8.8 million (VND200 billion) for 2020
- The Decree No. 115/2020/ND-CP guiding the implementation of the CIT reduction took effect on August 3.
Vietnam’s government on September 25, 2020, signed off on implementing a 30 percent corporate income tax (CIT) cut for certain businesses for the 2020 financial year. The Decree No 115/2020/ND-CP guiding the implementation of Resolution No. 116/2020/QH14 took effect on August 3, 2020
Earlier, Vietnam’s National Assembly on June 19 ratified the government’s proposal to cut corporate income tax by 30 percent. The reduction was approved by more than 90 percent of all State members.
Of note, the most important factor is that the CIT reduction will apply to all businesses if their total revenue does not exceed the VND 200 billion (US$8.8 million) threshold in 2020. This means that most small and medium enterprises (SMEs) will be eligible for such tax break regardless of the number of employees and the actual financial loss due to the pandemic.
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The purpose of the ratification is to ensure an equal subsidy policy for businesses that have been making their best efforts to retain employees, which substantially contribute to social welfare.
As mentioned in our previous article, the tax reduction is primarily based on the principle of self-assessment. Businesses are expected to review their actual business circumstances and self-assess their eligibility for such tax breaks.
Who is eligible?
- The CIT cut applies to all businesses that are involved in the production and trade of goods as well as services in accordance with Vietnamese law;
- The CIT reduction will apply to the total revenue of the enterprise including incomes such as capital transfer, real estate transfer, and services subject to special consumption tax; and
- The 30 percent CIT reduction will apply to the business’ CIT payable for the 2020 fiscal year minus the CIT incentives eligible for enterprises as per the Law on Corporate Income Tax.
Businesses that have been in operation for less than 12 months are also eligible. However, their tax cut will be calculated by total revenue earned in 2020 divided by the number of months they have been in operation, multiplied by 12.
As mentioned earlier, the CIT reduction is based on self-assessment. Businesses are required to determine the CIT reduction themselves when paying CIT. Businesses will have to specify the CIT tax reduction on forms provided in Circular No. 151/2014/TT-BTC and the declaration of CIT reduction as per Resolution No 116/2020/QH14 in the provided Appendix.
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This insight is a summary based on the recent approval from the government and does not constitute professional advice. Businesses should continue to follow our alerts for further updates.
For further information and assistance, please contact our tax, payroll, and HR professionals at Dezan Shira & Associates.
Note: This article was first published in June 2020, and has been updated to include the latest developments.